Series: MAR 2024

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  • 7 Marks

SCS – MAR 2024 – L3 – Q6c – Strategy, stakeholders, and mission

Describe and explain the four broad roles of NEDs identified in the Higgs Guidance (2003).

Prestige’s Board acknowledges that by adopting and implementing the highest standards of
corporate governance, this sets the standards and values for the entire Company. The
Company seeks to comply with best practice in all areas of corporate governance and
continues to review the Company’s procedures to maintain proper control and
accountability.
Required

There are nine members on Prestige’s Board of Directors. They include the Chairman, Chief Executive, three executive directors, and four non-executive directors (NEDs). Describe and explain four broad roles for NEDs identified in the document published in the UK in 2003, known as the Higgs Guidance.

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Has Case Study
  • 5 Marks

SCS – MAR 2024 – L3 – Q6b – Strategy, stakeholders, and mission

Explain how Principles V and VI of the OECD Principles of Corporate Governance could be applied at Prestige.

Prestige’s Board acknowledges that by adopting and implementing the highest standards of
corporate governance, this sets the standards and values for the entire Company. The
Company seeks to comply with best practice in all areas of corporate governance and
continues to review the Company’s procedures to maintain proper control and
accountability.
Required

Describe and explain how Principles V and VI of the OECD Principles of Corporate Governance – 2015 Edition, could be applied at Prestige to ensure good corporate governance practices.

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  • 8 Marks

SCS – MAR 2024 – L3 – Q6a – Strategy, stakeholders, and mission

Describe and explain 5 key issues in corporate governance for Prestige.

Prestige’s Board acknowledges that by adopting and implementing the highest standards of corporate governance, this sets the standards and values for the entire Company. The Company seeks to comply with best practices in all areas of corporate governance and continues to review its procedures to maintain proper control and accountability.

Required:
Describe and explain five key issues in corporate governance that would establish how well or badly Prestige is governed.

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Has Case Study
  • 5 Marks

SCS – MAR 2024 – L3 – Q5c – International financial management

Evaluate the factors restricting foreign investment despite potential good returns.

With reference to Option Three, evaluate the factors that restrict foreign investment despite the perceived potential for good returns. 

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  • 5 Marks

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

With reference to Option Two:

i) What would be its effective rate of borrowing for the three months if US dollar LIBOR is 4.50% at the start of the notional interest period for the FRA? (2 marks)
ii) What are the advantages of Convertible Bonds? (3 marks)

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  • 10 Marks

SCS – MAR 2024 – L3 – Q5a – Financial management

Calculate various financial ratios including ROCE, EPS, DPS, and TSR based on given financial data.

With reference to the information in Option One available to Prestige as presented by Professor Joseph Laing, a business consultant, calculate the following:

i) Return on Capital Employed (ROCE) (1 mark)
ii) Earnings Per Share (EPS) (1 mark)
iii) Dividend Per Share (DPS) (2 marks)
iv) Total Shareholders Return (TSR) (2 marks)
v) Explain the difference between ROCE and Accounting Rate of Return, their essential features, and relationship (4 marks)

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Has Case Study
  • 12 Marks

SCS – MAR 2024 – L3 – Q4b – Strategy implementation

Advise on an appropriate HR strategy to harmonize the organizational structure for effective delivery at Prestige.

Each company acquired or merged by Prestige was allowed to maintain its human resource structure.

Required:
Analyze and advise on an appropriate HR strategy Prestige should adopt to harmonize the organizational structure for effective delivery of the company’s objectives.

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  • 8 Marks

SCS – MAR 2024 – L3 – Q4a – Strategy implementation

Explain how Prestige could leverage ICT using the four broad stages of e-business development to compete.

Prestige’s Board has shifted from their long-standing reluctance to venture into foreign markets to seriously consider the possibility of expansion overseas. An important implication of this decision is that as the size of the market increases, competition becomes international. The main rivals are no longer local suppliers to a domestic market.

Required:
Using the four broad stages of development to a full e-business model, explain how Prestige could leverage ICT to compete.

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Has Case Study
  • 10 Marks

SCS – MAR 2024 – L3 – Q3 – Functional strategies

Explain the potential benefits of resource sharing through common IT systems at Prestige.

When five years ago the present regional divisional structure of Greater Accra, Ashanti, and Eastern was formalized, an attempt was made to ensure that common systems and ways of working were adopted across each of the three regions. However, due to the pressures on the Company, this was never fully implemented.

Required:
Explain the potential benefits of resource sharing (configuring an organization’s computing system in such a way that the information and resources within it can be accessed, and remotely accessed, across multiple administrative domains) to Prestige if they adopt common IT systems.

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Has Case Study
  • 10 Marks

SCS – MAR 2024 – L3 – Q2 – Competitive advantage

Apply and appraise Porter’s three strategies for sustaining competitive advantage for Prestige Designers Ltd.

A strategic clock can be used to consider different business strategies for gaining competitive advantage, based on providing a combination of price and perceived benefits. Porter has suggested three strategies for sustaining competitive advantage over rival firms and their products or services. They are a cost leadership strategy, a differentiation strategy, and a focus strategy.

Required:
Apply and appraise how effective the suggested three strategies for sustaining competitive advantage over rival firms would be useful to Prestige. (10 marks)

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  • 9 Marks

FR – March 2024 – L2 – Q2a – Financial Reporting Standards and Their Applications

Evaluate financial reporting treatment of Sikapa and Cocoa bonds in accordance with IFRS 9: Financial Instruments.

Kombra Ltd (Kombra) is a market leader in the printing and publishing industry. To benefit from a potential future decline in interest rates, Kombra invests in bonds and issues callable bonds. It occasionally trades these bonds by immediately flipping them for a profit. Others are held for the long term.

Kombra purchased two bonds on 1 January 2023. Details of the two particular bonds are as follows:

Sikapa Bond Cocoa Bond
Nominal value of bond GH¢47.25 million GH¢31.5 million
Coupon rate 4% 5%
Purchase price of bond GH¢40.425 million GH¢29.4 million
Effective yield to maturity 6.75% 7.8%

The Sikapa bond was bought with the intention of keeping it for a long time and withdrawing the interest and principal as they fall due.

The Cocoa bond was bought at a deep discount, and the aim is to wait until the market value increases, and then sell it at a profit. The Cocoa bond had a fair value of GH¢28.875 million as of December 31, 2023.

In both situations, the coupon, which is due on December 31 each year, has been paid as agreed.

Required:
In the case of each bond above, show the financial reporting treatment required by IFRS 9: Financial Instruments for the year ended 31 December 2023. Show all workings clearly.

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  • 20 Marks

FR – March 2024 – L2 – Q1 – Group Financial Statements and Consolidation

Consolidation of Chicha Plc and Wale Plc financial statements, involving adjustments for intra-group transactions, non-controlling interest, and goodwill.

On 1 July 2022, Chicha Plc acquired 80% of the ordinary shares of Wale Plc at a cost of GH¢2,570,000. On the same date, it also acquired 50% of Wale Plc’s 10% loan notes at par. The summarised draft financial statements of both companies are:

Statements of Profit or Loss for the year ended 31 March 2023
Chicha Plc Wale Plc
Sales revenue 15,000 6,000
Cost of sales (10,500) (5,000)
Gross profit 4,500 1,000
Operating expenses (1,500) (50)
Loan interest received/(paid) 18.75 (50)
Profit before tax 3,018.75 900
Income tax expense (750) (150)
Profit for the year 2,268.75 750
Statements of Financial Position as at 31 March 2023
Chicha Plc Wale Plc
Non-current assets
Property, plant and equipment 4,830 2,000
Investments 2,820 –
Total Non-current assets 7,650 2,000
Current assets 3,750 2,000
Total assets 11,400 4,000
Equity and liabilities
Equity
Stated capital 2,500 500
Retained earnings 6,400 2,100
Total equity 8,900 2,600
Non-current liabilities
10% loan notes – 500
Current liabilities 2,500 900
Total equity and liabilities 11,400 4,000

The following information is relevant:

  1. The fair values of Wale Plc’s assets were equal to their book values except for its plant, which had a fair value of GH¢800,000 more than its book value at the date of acquisition. The remaining life of all of Wale Plc’s plant at the acquisition date was four years. Depreciation is on a straight-line basis and charged to cost of sales. Wale Plc has not adjusted the value of its plant as a result of the fair valuation of the assets.
  2. In the post-acquisition period, Chicha Plc sold goods to Wale Plc for GH¢3,000,000. These goods had cost Chicha Plc GH¢2,250,000. During the year, Wale Plc had sold GH¢2,500,000 of these goods for GH¢3,750,000.
  3. The current accounts of the two companies were reconciled at the year-end with Wale Plc owing Chicha Plc GH¢187,500.
  4. The goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss of GH¢75,000, which is to be treated as an operating expense.
  5. Chicha Plc’s and Wale Plc’s retained earnings as at 1 April 2022 were GH¢4,131,250 and GH¢1,350,000, respectively. No dividends were paid or declared by either entity during the year.
  6. It is the group policy to value the non-controlling interest at acquisition at fair value. The directors valued the non-controlling interest at GH¢625,000 at the date of acquisition.
  7. Revenues and profits should be deemed to accrue evenly throughout the year.

Required:
Prepare for Chicha Plc a Consolidated Statement of Profit or Loss for the year ended 31 March 2023 and Statement of Financial Position as at 31 March 2023.

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  • 5 Marks

PT – Mar 2024 – L2 – Q5c – Income Tax Liabilities

Explain the tax treatment of a gift received.

What is the tax treatment of a gift received?

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  • 5 Marks

PT – Mar 2024 – L2 – Q5b -Taxation of Capital Gains

Compute the tax payable by Atta Panin on the sale of shares.

The following information relates to Atta Panin:

Required:
Compute the tax payable. (5 marks)

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  • 10 Marks

PT – Mar 2024 – L2 – Q5a – Value-Added Tax (VAT), Customs, and Excise Duties

Explain what is meant by Goods, Works, and Services according to the Income Tax Act.

Persons making payments for the supply of goods, works, and services are required by the provision of the Income Tax Act, 2015 (Act 896) to withhold taxes on the gross amount at various rates and pay the same to the Commissioner-General.

Required:
In reference to the above statement, explain what Goods, Works, and Services are.

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  • 5 Marks

PT – Mar 2024 – L2 – Q4b – Income Tax Liabilities

State the differences between capital expenditure and revenue expenditure with relevant examples.

With relevant examples, state the differences between capital expenditure and revenue expenditure. (5 marks)

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  • 5 Marks

PT – Mar 2024 – L2 – Q4a – Income Tax Liabilities

State the general and residual deduction rules governing the ascertainment of a person’s income from business and investment.

With reference to the Income Tax Act, 2015 (Act 896):

i) State the general and residual deduction rules governing the ascertainment of a person’s income from business and investment. (5 marks)

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  • 10 Marks

PT – Mar 2024 – L2 – Q3c – Income Tax Liabilities

Compute the assessable income for all relevant years for Hajia Bintu after ceasing operations.

Hajia Bintu has been in business from 1 September 2018, preparing accounts to 31 August each year. She ceased to operate the business on 31 May 2023. The agreed profits for the past years of operations are as follows:

Year Agreed Profits (GH¢)
Year to 30/8/2019 18,000,000
Year to 30/8/2020 23,000,000
Year to 30/8/2021 28,000,000
Year to 30/8/2022 33,000,000
Period to 31/5/2023 50,000,000

Required:
Calculate the assessable income for all relevant years.

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  • 6 Marks

PT – Mar 2024 – L2 – Q3b – Income Tax Liabilities

State the basis periods for a sole proprietorship, company, trust, and partner in a partnership.

State the Basis Periods for the following persons as provided in the Income Tax Act, 2015 (Act 896):

i) A sole proprietorship
ii) A company
iii) A trust
iv) A partner of a partnership

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  • 4 Marks

PT – Mar 2024 – L2 – Q3a – Income Tax Liabilities

Distinguish between the Year of Assessment and Basis Period as used in income taxation.

The determination of a person’s tax liability is in relation to the concept of “Year of Assessment” and “Basis Period”.

Required:
In relation to the statement above, distinguish between the concept of Year of Assessment and Basis Period as used in income taxation.

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